2017 (7) TMI 1381 - AT - Income Tax

Dividend Distribution Tax (DDT) - FAA referred to provisions of section 115-O and Article-10 of the DTAA entered into by India and Hungary and held that DDT was not a tax paid by the recipient foreign principal of the assessee, that it was a tax charged on the assessee itself in the status of domestic company, that foreign principal had no tax liability as far as DDT - foreign principal was not entitled to claim any beneficial treatment in terms of provisions of Article-10(2) of the relevant tax treaty, that the assessee also was also no entitled to claim such beneficial treatment independently, that a tax liability under the Act imposed on domestic transaction of a domestic entity was out of the purview of the DTAA provisions. - HELD THAT - As decided in own case 2017 (7) TMI 692 - ITAT MUMBAI DDT is a liability of the domestic company declaring dividend and not liability of the shareholder receiving such dividend income. Whereas, careful reading of Article 10 of India Switzerland treaty prima facie gives an impression that it speaks of taxability of the dividend at the hands of the recipient of such dividend which is a resident of the other contracting state. Therefore, keeping in perspective the provisions contained under section 115O vis a vis Article 10 of DTAA it needs to be examined whether the benefit of tax treaty can be extended to the DDT paid / payable by the assessee. We have noted, the various proposition advanced by the assessee claiming benefit under Article 10 of India Switzerland DTAA as contained in the written notes are nothing but repetition of submissions made before the learned Commissioner (Appeals). Repetition of submissions made before the learned Commissioner (Appeals) on 20th February 2014, a copy of which is at Page 112 of the paper book. Though, reading of Article 10 of India Switzerland DTAA prima facie gives an impression that it will only apply to non resident shareholder receiving the dividend, however, still it leaves a scope for examining the claim of the assessee that DDT being a tax on dividend, Article 10 of the DTAA would be applicable even if such dividend is payable by the domestic company. In our view, it will be too simplistic to reject the contention of the assessee on the plea that it will only apply where the non resident recipient of dividend incurs the liability in respect of dividend. Commissioner (Appeals), though, was required to deal with all propositions advanced by the assessee, he has not done so. Therefore, we are inclined to restore the matter back to the file of the learned Commissioner (Appeals) for fresh consideration after reasonable opportunity of being heard to the assessee.

Summary

Issues:
1. Rate of Dividend Distribution Tax (DDT) paid by the assessee.

Analysis:
The judgment involves a dispute regarding the rate of Dividend Distribution Tax (DDT) paid by the assessee during the relevant period. The Assessing Officer completed the assessment under section 143(3) of the Income-tax Act, 1961, determining the income of the assessee company. The primary issue in the appeal was related to the rate of DDT paid by the assessee. The Tribunal observed that the First Appellate Authority had not adjudicated the issue related to DDT with respect to the Indo Swiss DTAA. The Tribunal directed the matter back to the FAA for a decision on the merits. The FAA, after considering submissions, held that DDT was a tax on the assessee itself, not on the foreign principal, and dismissed the appeal.

In a subsequent hearing, the Authorized Representative referred to a previous order by the Tribunal in the assessee's case for AY 2008-09, where it was held that Article-10 of the DTAA would be applicable even if the dividend was payable by a domestic company. The Departmental Representative left the issue to the Bench's discretion. The Tribunal, after hearing the rival submissions, referred to the previous order where it was observed that the provisions of the DTAA would be applicable in the case of taxability of DDT at 10%. The Commissioner (Appeals) had held that DDT is a tax imposed under domestic law on a domestic company, and the DTAA would not apply to such transactions. The Authorized Representative argued that DDT is a tax on dividend and should be covered under Article-10 of the DTAA.

The Tribunal further analyzed the contentions of both parties and noted that the DDT was computed at 15% on the dividend payable to a foreign entity. The Tribunal observed that the DDT is a liability of the domestic company declaring the dividend, not the shareholder receiving it. The Tribunal considered the provisions of section 115O and Article-10 of the DTAA to determine whether the benefit of the tax treaty could be extended to the DDT paid by the assessee. It was decided that the matter should be sent back to the Commissioner (Appeals) for fresh consideration after affording a reasonable opportunity of being heard to the assessee. Consequently, the appeal filed by the assessee was partly allowed, directing the FAA to deal with all propositions advanced by the assessee.